200 Chinese Stocks Removed from MSCI Indexes

In its latest quarterly review, MSCI Inc. announced the removal of 60 Chinese stocks from its indexes, a move that underscores the ongoing challenges facing the Chinese market. Among the two stocks being added are state-owned hydropower company Huaneng Lancang and circuit board manufacturer Victory Giant. The deletions include several state-backed firms, such as CSSC Science & Technology Co. Ltd. and AVIC Industry-finance Holdings, impacting both the MSCI All Country World Index and the MSCI Emerging-Markets Index. The adjustments also extend to the MSCI China-A onshore index and the MSCI China all shares index, with 62 stocks removed from the latter and 69 from the former. This significant culling reflects a broader trend of foreign investors withdrawing capital from China, with India emerging as a notable beneficiary, adding seven stocks while removing just one. The trend of capital outflow from China has intensified, marking the second consecutive season where foreign investments have declined. In the third quarter of 2023, foreign direct investments saw a net withdrawal of $12.1 billion, a stark contrast to the peak of $107.2 billion in early 2022. The first half of 2023 recorded a net loss of $4.6 billion, indicating a potential for 2024 to be the first year with a net outflow of foreign direct investments, a significant drop from previous years. As the situation develops, the implications for China's economic landscape and its attractiveness to foreign investors remain to be seen, particularly if the current trends persist into the latter half of the year.